Comp. by: Jayapathirajan Stage : Revises1 ChapterID: 0002721333 Date:20/5/16 Time:20:03:36 Filepath:d:/womat-filecopy/0002721333.3D Dictionary : OUP_UKdictionary 1 OUP UNCORRECTED PROOF – REVISES, 20/5/2016, SPi Part I Overview and Methodology Comp. by: Jayapathirajan Stage : Revises1 ChapterID: 0002721333 Date:20/5/16 Time:20:03:36 Filepath:d:/womat-filecopy/0002721333.3D Dictionary : OUP_UKdictionary 2 OUP UNCORRECTED PROOF – REVISES, 20/5/2016, SPi Comp. by: Jayapathirajan Stage : Revises1 ChapterID: 0002721333 Date:20/5/16 Time:20:03:36 Filepath:d:/womat-filecopy/0002721333.3D Dictionary : OUP_UKdictionary 3 OUP UNCORRECTED PROOF – REVISES, 20/5/2016, SPi 1 The Performance of European Enterprise during the Twentieth Century General Overview Youssef Cassis, Andrea Colli, and Harm G. Schröter STUDYING BUSINESS PERFORMANCE This book originated from a very simple idea—that in the last analysis, perform- ance is what really matters in business and thus in business history. After all, the object of business history is to explain the success or failure of a company or an entire industry, or, at a more global level, to explain the relationship between business performance and economic performance. Yet, surprisingly, the analysis of performances has been neglected by economic and business historians. Of course, most company histories include some data, and sometimes some discus- sion, of profits or profitability. The performances of entire industries have been considered.1 There have also been a few national analyses, especially in France, with the studies inspired by Jean Bouvier in the 1960s and Jacques Marseille in the 1990s.2 In Germany, Mark Spoerer has reassessed business profitability under the Weimar Republic and the Nazi regime.3 At the European level, Youssef Cassis attempted a comparative analysis of the performance (defined in terms of net profits, returns on equity, and survival) of the leading British, French, and German companies in the course of the twentieth century as part of his study of big business in the three major European economies.4 The contributions from economics and business strategy, though important, do not fill the existing gap in the literature. Neoclassical economics works on the 1 See for example W. Feldenkirchen, Die Eisen- und Stahlindustrie des Ruhrgebiets 1879–1914: Wachstum, Finanzierung und Struktur ihrer Großunternehmen (Wiesbaden, 1978); Y. Cassis, City Bankers, 1890–1914 (Cambridge, 1984); G. Jones, British Multinational Banking, 1830–1990 (Oxford, 1993); T. Gourvish and R.G. Wilson, The British Brewing Industry, 1830–1980 (Cambridge, 1994). 2 J. Bouvier, F. Furet, and M. Gillet, Le mouvement du profit en France au XIXème siècle (Paris, 1965); J. Marseille, dir., Les performances des entreprises françaises au XXème siècle (Paris, 1995). 3 M. Spoerer, Von Scheingewinn zum Rüstungsboom: die Eigenkapitalrentabilität der deutschen Industrieaktiengesellschaften, 1925–1941 (Stuttgart, 1996). 4 Y. Cassis, Big Business: The European Experience in the Twentieth Century (Oxford, 1997). Comp. by: Jayapathirajan Stage : Revises1 ChapterID: 0002721333 Date:20/5/16 Time:20:03:38 Filepath:d:/womat-filecopy/0002721333.3D Dictionary : OUP_UKdictionary 4 OUP UNCORRECTED PROOF – REVISES, 20/5/2016, SPi 4 The Performance of European Business in the Twentieth Century assumption that in a competitive environment expected profits converge in the long term and has thus paid little attention to the performances of individual companies. On the other hand, institutional economics has paid great attention to firms but has not directly addressed the question of performance. A number of major research projects on company profits have been undertaken within the field of applied economics, especially in Britain. P.E. Hart’s work on the interwar years and beyond, based on Inland Revenue data and figures from the Central Statistical Office, provided aggregate data by industry and considered a number of issues such as the appropriation of profit and the effects of the size of the firm.5 Geoffrey Whittington’sanalysisofcompanyprofits in the 1950s, based on the published accounts of all United Kingdom quoted companies engaged in manufacturing and distribution, was more directly interested in the profitability of firms, though at an aggregate level.6 Similar studies have been undertaken in Continental Europe.7 A more recent comparative study, coordinated by Dennis Mueller, has acknowledged the importance of firms’ characteristics to explain the persistence of diverging profit rates, without, however, going beyond the level of aggregate figures at a national level.8 The business strategy literature has more directly addressed the question of the relationship between organizational structure and performance at company level, at least since Richard Rumelt’s classic work on the largest American companies in the 1950s and 1960s. In the heyday of Chandlerian studies, Rumelt’s conclusions pointed to strong performance for firms combining a strategy of diversification with a structure of divisional organization.9 Interestingly, similar conclusions have been drawn by Richard Whittington and Michael Mayer in their recent analysis of the top 100 British, French, and German companies in the 1980s and 1990s.10 One increasingly influential view of performance has been the measure of organiza- tional longevity, notably the work of James Collins and Jerry Porras on American firms11—an issue that has interested business historians, in the first place Leslie Hannah, who has compared the world’s largest 100 firms in 1912 and 1995.12 More recently, Christian Stadler has attempted to draw some lessons from 5 E. Hart, Studies in Profit, Business Saving and Investment in the United Kingdom, 1920–1962, 2 vols. (London, 1965–8). 6 G. Whittington, The Prediction of Profitability and Other Studies of Company Behaviour (Cambridge, 1971). 7 See for example G. Echevarria and J.L. Herrero, ‘La evolución de la economia española durante el período 1940–1988 a partir de un indicator de la tasa de beneficio del sector industrial’, Información Comercial Española (1989), 665; X. Taffunell, ‘Los beneficios empresariales en España, 1881–1980. Estimación de un índice annual de excedente de la gran empresa’,inRivista de Historia Económica, 16, 3, (1998), 707–46; H. Bruse, Wettbewerbsbeurteilungen auf statistischer und dynamischer Basis, illu- striert anhand der Aktiengesellschaften der ‘Bonner Stichprobe’ (Bonn, 1981). 8 D.C. Mueller, ed., The Dynamics of Company Profits. An International Comparison (Cambridge, 1990). 9 R. Rumelt, Strategy, Structure and Economic Performance (Boston, 1974). 10 R. Whittington and M. Mayer, The European Corporation: Strategy, Structure and Social Science (Oxford, 2000). Whittington and Mayer’s aim was to extend the Harvard programme of the early 1970s, which included studies by Rumelt on the United States, Channon on Britain, Dyas on France, Thanheiser on Germany, and Pavan on Italy. 11 J. Collins and J. Porras, Built to Last (London, 1994). 12 L. Hannah, ‘Marshall “trees” and global “forest”: were “giant redwoods” different?’,in N. Lamoreaux, D. Raff, and P. Temin, eds., Learning by Doing in Markets, Firms and Countries (Chicago, 1999). See also Howard Gospel and Martin. Comp. by: Jayapathirajan Stage : Revises1 ChapterID: 0002721333 Date:20/5/16 Time:20:03:41 Filepath:d:/womat-filecopy/0002721333.3D Dictionary : OUP_UKdictionary 5 OUP UNCORRECTED PROOF – REVISES, 20/5/2016, SPi General Overview 5 ‘outstanding corporations’—very large European companies combining survival (100 years or more) with performance, measured by total shareholder return.13 There is undoubtedly a lot to take from the business strategy literature, especially for the analysis of performance in the last two or three decades. Nevertheless, it does not replace the long-term perspective and human dimension brought by the historical approach. DEFINING BUSINESS PERFORMANCE For all that, the word ‘performance’ is ever present in the title of economic and business studies. The problem is that there is no general agreement about what business performance actually means. For Alfred Chandler, for example, whose influence on an entire generation of historians has been enormous, the most successful firms are those that have made the ‘three-pronged investment’ in production, management, and marketing, with longevity being the only approxi- mate measure of actual performance.14 Business performance can be assessed at a firm, industry or national level, as in Michael Porter’s notion of ‘international competitive advantage’, which is measured through the exports record of industries based in a particular country.15 From a macroeconomic perspective, performance tends to be measured in terms of productivity growth. For others, performance is best assessed by a firm’s innovative capacity. Performance can also be measured in a more qualitative or even subjective way, using such criteria as job creation—a major issue for trade unions—or contribution to national greatness. At a firm level, performance can be defined according to four broad criteria. The first is size (whether measured by market capitalization, turnover, workforce, or total assets). This could be considered as an indirect measure of performance, since growth is usually, though not necessarily, the outcome of strong competitive results. The second, rates of return (like return on equity and holding return) is in many respects the most direct measure. Value added has recently tended to be considered as the key measure of business performance,16 but